If inflation is coming, as we described above, those investors who remember the inflation of the 1970s should know that it will not necessarily look like it did back then. The economy is radically different in sectoral composition and weighting; industries are radically different technologically; people’s appetites and needs for particular consumer goods are very different in many ways. We are not calling for an inflationary blowoff like that of the 70s. But still, coming from the extremely low bases to which they have sunk, neither inflation nor 10-year Treasury rates need to rise by large absolute numbers in order to have a large impact on firms’ behaviors and on investment performance.
After the events of last week, authorities seem to be making robust preparations to avoid any kind of political disorder ahead of January 20. Still, there is a general tone of anxiety that will likely dissipate once that date has passed and power has once again peacefully transferred from the outgoing to the incoming administration. Americans should remember how fortunate they are that the prospect of anything else is an alarming and almost unthinkable anomaly rather than a resigned expectation, as it is for many of the world’s people.
We remain concentrated on accurately divining the macro environment, as described above, and on the favored investment themes of the newly ascendant majority. That majority is narrow, and while there will be calls to push hard to get an agenda underway before the looming 2022 Congressional elections, the resistance of centrists and moderates may well doom many of the ambitions of the Democratic Party’s left wing. Green themes have had quite a stock market run, but we believe they can move forward more, as they are ultimately more secular shifts than simple transient political priorities of the moment.
We continue to like the favorite growth industries in the U.S. that we have mentioned over the last few months. We suggest investors buy the dips in markets, as corrections could occur as interest rates rise. Other favorites are ETFs in emerging markets, India, South Korea, and Japan, and some reflationary assets — including gold and bitcoin.
Thanks for listening; we welcome your calls and questions.
